Institutional Background

The U.S. has a long history of policy initiatives in relation to health risk. Implicitly Welfare programs, which date back to the 1930s and were greatly expanded by the Great Society in the 1960s, insure workers against a variety of shocks, implicitly including health related shocks insofar they affect earnings. Since 1965 Medicare has sought to provide health insurance to the elderly and the disabled. Medicaid has sought to provide health insurance to the poor since the 1990s. The last two decades legislation in the U.S. was passed that limits the ability of employers to condition wages on the health conditions of employees, and to discriminate against applicants with prior health conditions when filling vacant positions.

Wage Based Discrimination

In 1990 Congress enacted the Americans with Disabilities Act (ADA) to ensure that the

disabled have equal access to employment opportunities.1 _{At this point a disability was}

interpreted as an impairment that prevents or severely restricts an individual from doing activities that are of central importance to one’s daily life. In 2009 the ADA Amendments Act (ADAAA) went into effect. This act rejected the strict interpretation of the ADA, broadening the notion of a disability. This included prohibiting the consideration of mea- sures that reduce or mitigate the impact of a disability in determining whether someone is disabled. It also allowed people who are discriminated against on the basis of a perceived disability to pursue a claim on the basis of the ADA regardless of whether the perceived disability limits or is perceived to limit a major life activity. The ADAAA excludes from

the definition of a disability those temporary or minor impairments.2 _{Under the ADAAA}

people can be disabled even if their disability is episodic or in remission. For example people whose cancer is remission or whose diabetes is controlled by medication, or whose seizures are prevented by medication, or who can function at a high level with learning disabilities are all disabled under the act.

Before the ADA job seekers could be asked about their medical conditions and were often required to submit to a medical exam. The act prohibited certain inquiries and conducting a medical exam before making an employment offer. However, the job could

still be conditioned upon successful completion of a medical exam.3

The ADA permits an employer to establish job-related qualifications on the basis of business necessity. However, business necessity is limited to essential functions of the job. So impairments that would only occasionally interfere with the employee’s ability to perform

tasks cannot be included on this list.4 _{A job function is essential if the job exists to perform}

1_{The ADA sets the federal minimum standard of protection. States may have a more stringent level.}

2

Under the ADAAA major life activities now include: caring for oneself, performing manual tasks, seeing, hearing, eating, sleeping, walking, standing , lifting, bending, speaking, breathing, learning, reading, concentrating, thinking, communicating, working, as well as major bodily functions.

3_{For example, the Equal Employment Opportunity Commission (EEOC) has ruled that an employee}

may be asked ”how many days were you absent from work?”, but not ”how many days were you sick?”. 4

For example, an employer cannot require a driver’s license for a clerking job because it would occa- sionally be useful to have that employee run errands. Also qualification cannot be such that a reasonable

that function or if the limited number of employees available at the firm requires that the task must be performed by this worker. Furthermore, a core requirement of the ADA is the obligation of the employer to make a reasonable accommodation to qualified disabled

people.5

Insurance Cost and Exclusion Discrimination

In 1996, Congress passed the Health Insurance Portability and Accountability Act (HIPAA) which placed limits on the extent to which insurance companies could exclude people or deny coverage based upon pre-existing conditions. Although insurance companies were allowed exclusions periods for coverage of pre-existing conditions, these exclusion periods were reduced by the extent of prior insurance. In particular, if an individual had at least a full year of prior health insurance and she enrolled in a new plan with a break of less than 63 days, she could not be denied coverage. However, insurers were still allowed to charge higher premiums based upon initial conditions, limit coverage and set lifetime limits

on benefits.6 _{There is evidence that many patients with pre-existing conditions ended up}

either being denied coverage,7 _{or having their access to benefits limited.}8

The Patient Protection and Affordable Care Act of 2010 further extended protection against pre-existing conditions. Beginning in 2010 children below the age of 19 could not be excluded from their parents’ health insurance policy or denied treatment for pre-existing conditions. Beginning in 2014 this restriction will apply to adults as well. Moreover, insur- ance companies will no longer be able to use health status to determine eligibility, benefits or premia. In addition, insurers will be prevented from limiting lifetime or annual benefits

or from taking away coverage because of an application mistake.9

accommodation would allow the employee to perform the task. 5

These accommodations include: a) making existing facilities accessible and usable b) job restructuring c) part-time or modified work schedules d) reassigning a disabled employee to a vacant position e) acquiring or modifying equipment or devices f) providing qualified readers or interpreters.

6_{See http://www.healthcare.gov/center/reports/preexisting.html}

7

See Kass et al. (2007). 8

See Sommers (2006).

Summary

It is our interpretation of these legislative changes that, relative to 20 years ago, it is much more difficult now for employers to condition wages on the health status of their (potential) employees and preferentially hire workers with better health. In addition, current and pending legislation will make it increasingly difficult to condition the acceptance into, and insurance premia of health insurance plans on prior health conditions.

The purpose of the remainder of this paper is to analyze the aggregate and distributional consequences of these two legislative innovations in the short and in the long run, with specific focus on their interactions.